Why Aflac Has Room to Fly

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Aflac climbed 1.5% this morning after FBR Capital upgraded the life insurer from market perform to outperform.

So what: Along with the upgrade, analyst Randy Binner raised his price target on the stock to $71 per share (from $60), representing about 15% of upside to Monday's close. The stock has underperformed its industry in 2013, but Binner thinks Aflac's improving fundamentals should help close the gap.

Now what: FBR expects Aflac's top line to improve in relatively short order. "We are upgrading AFL to Outperform from Market Perform based on our view that sales data following the Japan Post deal, and better news on solvency margin ratio (SMR) management and yen repatriation, should help shares close their ~30% underperformance to the group year to date," said Binner. With Aflac shares trading at such a wide P/E discount to the industry -- 8.6 versus 12.5 -- it's tough to argue with FBR's outperform call.

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